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Risk Measurement Technique

In present every business is confronting a number of risks related with its external as well as internal environment, that need to be measured accurately for assuring a convinced success in the present competitive environment. For measuring risks there exist a number of traditional as well as advanced risk measurement techniques that can be used by organizations to measure risks.

Risk Measurement Techniques

Following are some advanced risk measurement techniques that can be prominently used by organizations to measure risks:

1. Capital Asset Pricing Model: It is a prominent approach in the direction of risk measurement. With the approach of capital asset pricing model, risk is assessed by equating the risk of a project comparative to the market portfolio. This approach presumes that the on the whole risk incurred by shareholders represents two conceptions:

? Specific (diversifiable) risk: This risk is explicit to an individual company like impact on cash flows originating from a novel competitor ingoing the market or when a technological transform constructs one of the firm's key products disused.
? Market (non-diversifiable) risk: This risk is due to macroeconomics factors that basically have an effect on the returns of all companies, like modifications in interest or corporate tax rates or alterations in on the whole consumer demand (Drury, 2004).

The CAPM approach to risk measurement presumes that specific risk is extraneous in ascertaining the returns commanded by shareholders as they can expand it away (and thus pass up it) by ...

Solution Summary

Three risk measurement techniques and their applications are identified.